Brex has once again made the decision to partner with another one-time competitor, surprising but perhaps realistic. This time, Zip, CEO of both companies, spoke exclusively to TechCrunch.
In April 2022, FinTechBrex announced that it would make a “big push” to both the enterprise and software.
The news was notable given that Brex was originally a startup focused on startups. We provided corporate cards primarily aimed at startups and SMBs. Brex has gradually evolved its model with the aim of serving as a “financial operating system” for businesses.
When the company announced it was diverging into software, its goal was to diversify revenue streams. So instead of making money primarily from exchange fees, they also wanted to generate recurring revenue from subscriptions to software.
However, over the years, Brex appears to have noticed that there are some aspects of serving enterprise customers that may not be able to do the way they want to. And according to Chief Business Officer Art Levi, the majority of revenue today still comes from exchange fees (although the software is steadily growing, he said).
So, in what might be seen as a surprise move, Brex announced last fall that it was partnering with Navan to offer “Brex for Navan” by combining corporate cards with Navan’s travel management with products aimed at companies. After Navan (formerly known as Tripcions) reached overall cost management, the competition with Brex increased as it expanded simply by offering travel services. So the news that the two were working together raised some eyebrows.
And on Tuesday, Brex is now announcing another partnership aimed at boosting its offering to businesses. It partners with Zip, a five-year-old procurement startup that raised $190 million at a $2.2 billion valuation last October, offering an exclusively shared “Zip” with TechCrunch. The new product is embedded directly into Zip’s platform with the aim of giving Brex virtual cards the ability to streamline procurement and payment workflows, prevent fraudulent spending before it occurs, and simplify global operations with a single card program.
Brex co-founder and CEO Pedro Franceschi and Zip CEO Rujul Zaparde told TechCrunch that one of the reasons why the partnership makes sense is that the two companies together serve more than 30,000 companies, and have some overlap. For example, companies where both Brex and Zip count as customers include Humanity, Etoro, Betterup, Carta, Coinbase, Gong, Zapier, Wiz, Neuralink, and more. Both focus on growing the enterprise customer base and hope that new combinations will strengthen their respective positions in that segment.
According to Franceschi, in the first quarter, Brex saw a 70% increase in corporate revenue and an increase in segment net revenue retention rate by more than 130%. Meanwhile, ZIP has achieved the largest quarter on record for ZIP, growing 155% within the strategic enterprise segment, Zaparde told TechCrunch. In addition to the above, other companies where ZIP counts as customers include Openai, Discover, Snowflake, Reddit and Sephora.
In the case of Brex, the startups realized that what ZIP built for sourcing is lined up more than what they could offer when they were trying to sell to businesses.
“If you’re a startup, but you don’t actually have a complex procurement workflow, then your corporate card usually works. But when you enter a more sophisticated company, things like ZIP come to life in a really differentiated way, as you have a complex procurement process.
Interestingly, Zip touts “never lost a single enterprise customer.”
Brex’s humility is evident considering the startup itself admitted to trying too fast and therefore allowing it to hit some road rise on its growth. In the 2022 TechCrunch Confusion Panel, co-founder Henrique Dubugras acknowledged that startups need to focus more strategically on the startup’s customer-based services.
But perhaps Brex really gets the last word. The decision to partner with Zip and Navan also means that Brex is spending less on building its products. So this move could potentially be traced back to reduce the cash burning that Brex is certainly working on. In January 2024, Brex announced that it had cut 282 employees (nearly 20% of its staff) in the restructuring. The move comes after reports that they burned $17 million in cash each month in the fourth quarter of 2023 and were trying to preserve the runway.
According to Franceschi, efforts to slow cash burning seem to be paying off. In the first quarter, Brex’s cash burning fell by about 90% year-on-year, he said.
Burning baby burns
Since its launch in 2017, Brex has generated over $1.5 billion in both primary and secondary transactions. It was valued at over $12.3 billion at its peak in 2022. As of February, the startup had expected its annual net revenue to reach $500 million this year. In April, the company saw a 154% increase in realised revenue. Brex hasn’t made any profit yet, but Francesci expects it to end the year.
It is also publicly available on the roadmap. Finally.
“We want to be a public company, but we want to make it public when we’re ready,” Francesci told TechCrunch. “There are a lot of things about this, but it’s important to get a governance structure. It’s approaching in terms of IPOs, but there are other considerations, such as financial profiles and market conditions.”
Meanwhile, it appears to be leaning towards this strategy of partnering with other companies. If you team up with Navan during your trip, Franceschi said that Brex is aware that while it can meet the needs of fewer customers, it could help with serving an enterprise base.
“We kept hearing the same things from our customers. The disconnected systems were slowing them down,” he told TechCrunch.
These types of relationship phrases can be described as “cooperation,” or as a combination of cooperation and competition. In particular, at FinTech, many companies realize that it makes more sense to partner or invest with other startups that have built something they are interested in offering or improving. For example, Equity Management startup Carta recently wrote a check on SimpleClosure’s $15 million salary increase after abandoning its own plans to build similar products.
For both Brex and Zip, the partner’s decision was ultimately summed up to listening to the customers.
“It was a very natural partnership,” Zapard told TechCrunch. “And really, our customer base pulled it out of us.”
Francesci agrees.
“We are saying, “How can we build deep product integrations where one plus one equals five?”